MNI POLICY: ECB Must Not Overfixate On Markets - Villeroy

By Luke Heighton

     FRANKFURT (MNI) - The European Central Bank "must not be market dependent"

and should not rely "too exclusively" on market-based measures of inflation

expectations, the governor of the Central Bank of France said today.

     Moreover, multilateralism is facing "a major crisis," Francois Villeroy de

Galhau warned at an event to mark 75 years since the conference at Bretton

Woods, with an "implosion of the system" being the worst-case scenario.

     "A more promising scenario," he continued, "would be to come out of this

crisis stronger by re-building common solutions."

     Here are key points from his speech in Paris:

     --Monetary policies "cannot do everything, and cannot perform miracles.

They cannot repair the damage caused by protectionist uncertainties; they can

neither replace reforms conducive to long-term growth, nor more growth-enhancing

fiscal policies."

     --Monetary policy in the major advanced economies does not target exchange

rates. "This is the fruitful paradox of recent years: the coexistence of

"domestically focused" policies that results in a "globally-cooperative"

monetary environment," Villeroy said.

     --Monetary policy must therefore "be conducted in full independence. That

is, independently of political powers [...] But also independently of short-term

pressures or any particular economic interests."

     --"We take account of market indications," Villeroy said, "but we must not

be market dependent; this includes not relying too exclusively for inflation

expectations on market-based measures. We are data dependent and I say this in

particular for the ECB: in our coming Governing Council meetings, we will assess

actual economic data and we will act accordingly if and when needed."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: M$X$$$,MT$$$$,M$$EC$]